ACCOUNTING INFORMATION SYSTEMS: AN OVERVIEW

Lecture 1

Learning Objectives
Explain what an Accounting Information System (AIS) is

and describe the basic functions it performs. Discuss why studying the design and management of an AIS is important Explain the decisions an organization makes and the information needed to make them Explain the role played by the AIS in a companys value chain and discuss ways that the AIS can add value to a business Explain how an AIS and corporate strategy affect each other

Systems, Data and Information

System

A set of two or more interrelated components interacting

to achieve a goal
Goal Conflict Occurs when components act in their own interest without regard for overall goal Goal Congruence Occurs when components acting in their own interest contribute toward overall goal

Data vs. Information

Data are facts that are

recorded and stored

Insufficient for decision making.

data

data data

Information is processed data

used in decision making

Too much information however,

Information

will make it more difficult to make decisions. This is known as Information Overload.

Value of Information
The value of information is the benefit produced by the

information minus the cost of producing it.

What makes information useful?

Necessary characteristics:

Relevant The capacity of information to make a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations.
Reliable The quality of information that assures that information is reasonably free from error and bias and faithfully represents what it purports to represent. Complete

The inclusion in reported information of everything material that

is necessary for faithful representation of the relevant phenomena.

What makes information useful?

Timely Having information available to a decision maker before it loses its capacity to influence decisions. Understandable The quality of information that enables users to perceive its significance. Verifiable The ability through consensus among measurers to ensure that information represents what it purports to represent or that the chosen method of measurement has been used without error or bias. Accessible Available when needed (see Timely) and in a useful format (see Understandable).

What is an AIS?
An AIS is a system that collects, records, stores and

processes data to produce information for decision makers.

It can: Use advance technology; or Be a simple paper-and-pencil system; or Be something in between Technology is simply a tool to create, maintain or improve

a system

Components of an AIS
People using the system Procedures and Instructions Data Software Information Technology (IT) Infrastructure Internal Control and Security

AIS and Business Functions

Collects and store data about organizational activities and

transactions
Transforms data into information that is useful for decision

making
Provides adequate controls to safeguard the

organizations assets

Why Study AIS?

It is fundamental to accounting To understand how the accounting system works.
How to collect data about an organizations activities

and transactions How to transform that data into information that management can use to run the organization How to ensure the availability, reliability, and accuracy of that information

Why Study AIS?

Auditors need to understand the systems that are used to

produce a companys financial statements.

Tax professionals need to understand enough about the

clients AIS to be confident that the information used for tax planning and compliance work is complete and accurate.
One of the fastest growing types of consulting services

entails the design, selection, and implementation of new Accounting Information Systems.

Why Study AIS?

AIS course complements other system courses

Other systems courses focus on design and

implementation of information systems, databases, expert systems, and telecommunications. AIS courses focus on accountability and control.

The CITP Designation

CITP: certified information technology professional Identifies CPAs who possess a broad range of

technological knowledge and the manner in which information technology (IT) can be used to achieve business objectives
Reflects the AICPAs recognition of the importance and

interrelationship of IT with accounting

Role of AIS in the Value Chain

The objective of most organizations is to provide value to

its customers.
A business will be profitable if the value it creates is

greater than the cost of producing its products or services.

Role of AIS in the Value Chain

Value is provided by performing a series of activities

referred to as the value chain.

An organizations value chain consists of nine interrelated

activities that collectively describe everything it does.

The five primary activities consist of the activities

performed in order to create, market, and deliver products and services to customers and also to provide post-sales services and support.

Value Chain Primary Activities

Inbound Logistics

Operations

Outbound Logistics

Marketing/Sales

Service

Value Chain Support Activities

Firm Infrastructure

Technology

Human Resources

Purchasing

Value Chain

Role of AIS in the Value Chain

Information technology can significantly impact the

efficiency and effectiveness with which the activities are carried out
An organizations value chain can be connected with the

value chains of its customers, suppliers and distributors

Role of AIS in the Value Chain

adding value means making the value of the finished

component greater than the sum of its parts

It may mean: Making it faster Making it more reliable Providing better service Providing enhanced features

Customizing it

AIS and Corporate Strategy

Organizations have

limited resources, thus investments to AIS should have greatest impact on ROI.
Organizations need to

IT Developments

understand: IT developments Business strategy Organizational culture Will effect and be effected by new AIS

AIS
Organizational Culture Business Strategy